In The Banking Crisis, Tech Stocks Were a Haven. But Here Are Reasons Why The Rally May End.

Mar 23, 2023

In The Banking Crisis, Tech Stocks Were a Haven. But Here Are Reasons Why The Rally May End

During last month's financial upheaval, big tech became a surprise defensive sector, as shares of Apple, Microsoft, and several rivals gained amid a larger market selloff. The issue now is how long that surge will persist.

The stock market rose again on Tuesday as investors hoped the worst of the banks' woes were behind them. Even if the recent market rally fades, data suggest that tech's recent outperformance may become more difficult to replicate in the future.

Recently, the relative performance of stock market indices has been out of pace with history. According to DataTrek Research's Nicholas Colas, the Nasdaq Composite is no exception: The tech-heavy index has gained 11.6% this year, compared to the S&P 500's 2.9% rise through Monday's closing.

"The Nasdaq's recent 9.5 percentage point outperformance over the last 50 trading days versus the S&P 500 is highly unusual from a statistical perspective," Colas writes.

According to DataTrek, technology has rarely enjoyed such a large advantage over the broader market since the beginning of 2010. According to the business, the Nasdaq's outperformance has only been statistically significant three times: in May 2020, January 2021, and August 2022.

Here is when history suggests investors should begin to scale back on new tech defenses.

As the Nasdaq surpassed the S&P 500 in January 2021 and August 2022, the tech index fell substantially behind the wider market. Only in 2020 did the Nasdaq continue outperforming for the next 50 trading days after its lead over the S&P had grown significantly.

"History strongly suggests that it's time to lighten up on Nasdaq/US Big Tech names," Colas writes.

Nevertheless, lightning does not imply complete dumping. Later in 2021, the Nasdaq will be able to keep up with the S&P 500. While 2022 was a difficult year for technology, few investors would have wanted to miss the 2023 rebound.

Yet there are several reasons to be confident in big tech. Businesses with massive cash reserves, such as Apple (AAPL), Microsoft (MSFT), and Google parent Alphabet (GOOGL), are less reliant on outside capital. Substantial layoffs have already reduced their cost structures, and many of their end markets remain robust.

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South Korean CBDC – 7 South Korean Banks to Join Issuing The Digital Currency Since cryptocurrencies arrived on the financial scene and changed how people transact and transfer money, central banks have become more interested in developing their own virtual payment systems. After Russia, China, Nigeria, India, and Jamaica, South Korea is taking a major step toward introducing its own Central Bank Digital Currency in an upcoming pilot program involving the public and some major banks. The initiative aims to test the feasibility of a digital currency within the existing financial system, enabling a limited number of citizens to transact with CBDC at selected merchants and Points of Sale. This move aligns with the global trend of central banks exploring digital currencies to enhance payment efficiency, reduce transaction costs, and modernize the financial landscape. South Korea CBDC Pilot Program Bank of Korea (BOK), in collaboration with financial regulators, announced an initiative to test the rolling out of CBDC involving seven major banks and 100,000 participants. The pilot program “Project Hangang” is scheduled to run from April to June 2025, focusing on testing deposit tokens issued by banks and backed by the CBDC. These banks include KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, NH NongHyup Bank, Industrial Bank of Korea (IBK), and Busan Bank. These tokens will be used for transactions in both online and offline retail environments, allowing the government and financial institutions to evaluate their effectiveness. Users and Merchants Participation The BOK is expected to announce the project by the end of March, asking 100,000 South Koreans to participate in the pilot and convert their traditional bank deposits into digital tokens for payments. Individuals will be limited to a maximum holding of 1 million WON (approximately $687) and a total transaction cap of 5 million WON during the trial’s duration. Various merchants, including convenience stores, supermarkets, coffee shops, and online platforms, will accept these tokens as payment. Notable participants include 7-Eleven, Hanaro Mart, Ediya Coffee, Silla University, and Hyundai Home Shopping. This will help assess the practicality and usability of the CBDC across different retail settings. Global Adoption of CBDC The South Korean CBDC initiative is part of a broader global trend, with many countries exploring digital currencies to modernize their financial systems. The Bank for International Settlements (BIS) has been actively promoting CBDC projects worldwide, with major economies such as China, the European Union, and the United States conducting their own trials. China’s digital Yuan e-CNY is already in an advanced phase, with widespread adoption in various sectors. The European Central Bank is also working on a digital Euro, while the US Federal Reserve is researching the potential implications of a digital Dollar. These initiatives aim to improve payment efficiency, enhance financial inclusion, and strengthen monetary policy frameworks. Conclusion South Korea’s CBDC pilot marks a significant step toward digital financial transformation. By involving the public, key banking institutions, and merchants, the trial will offer critical data on the viability of digital currencies. As more countries explore CBDCs, these findings could influence future implementations worldwide, paving the way for a more efficient payment system.

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South Korean CBDC – 7 South Korean Banks to Join Issuing The Digital Currency

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